Ultra fast future: Changes to New Zealand telecommunications

New Telecommunications Commissioner

The most significant recent development is not a change in legislation, but in personnel.  The new Telecommunications Commissioner, Dr Stephen Gale commenced his new role on 12 July for a five year term.

The Telecommunications Commissioner is an important role.  While the Telecommunications Act sets objectives and tests for the Commerce Commission to apply in making its decisions, it leaves room for the Commission to exercise its own judgment, especially on price-setting details. 

Dr Gale comes very well qualified to the position.  He has been an associate member of the Commission since 2010 and in that capacity has been involved in a range of regulatory and competition decisions. 

Before joining the Commission, Dr Gale was a director at Castalia, an economic consultancy firm.  He holds a doctorate in physics from Cambridge University, and began his career as an energy policy specialist, before moving into regulation and competition policy more generally.  Dr Gale has appeared as expert witness in a number of significant cases.

Previous appointees have come from legal backgrounds, so it is interesting now to have an economist in charge.  Dr Gale has so far refused to be drawn on whether he will pursue different priorities, and has not expressed a view either way on more contentious matters, including the claimed convergence between broadcasting and telecommunications, and the relationship between copper and fibre wholesale pricing. 

Outgoing Commissioner

The appointment of a new Telecommunications Commissioner means farewell to Dr Ross Patterson.  Dr Patterson served as Commissioner from 2007 and has overseen the implementation of significant new regulation in the telecommunications sector.  His decisions are credited with delivering better, lower-priced services to consumers.

Dr Patterson oversaw the operational separation of Telecom, the unbundling of Telecom's local loop, and the setting of standard terms determinations to set prices for the local loop and other services.  The latter two changes, and the decisions made by the Commission under its new powers, have had significant impacts.

Dr Patterson notched up a number of key successes in and out of Court.  Perhaps the most significant was the NZ$31.6m settlement reached with Telecom over alleged discrimination by Telecom against its competitors under the operational separation regime.  

During Dr Patterson's time, competition in telecommunication markets has increased.  Notable highlights were the entry of mobile operator 2degrees and competition over the provision of backhaul services.  Dr Patterson also recently led the Commission in a demand-side study into factors that may affect the uptake of UFB. 

This is an impressive record, and it would be difficult to find a telecommunications regulatory body in any other jurisdiction that had undertaken so much work over a similar period. 

The future programme

Dr Gale inherits a work programme with a strong focus on networks where competition remains limited.  There are a number of significant tasks. 

The UFB and the separation of Telecom's retail services from its network arm, Chorus, has meant changes to the services regulated by the Commission.  The Commission is now responsible for regulating local fibre companies, and Chorus, and has oversight of the ownership separation of Telecom and Chorus.  There are also changes to the prices for some services, which the Commission is currently working through.   

The Commission will also continue its annual reviews of the level of competition in backhaul services (which link local exchanges to other telcos) and regional links.  Once entirely owned by Telecom, other telcos also now provide backhaul services. 

There may be increasing tension between copper and fibre.  Many telcos have invested in equipment in the copper network, leading to the unbundling of many exchanges.  If customers move to fibre services, much of this investment could be lost.  Prices and terms of fibre services vis-à-vis copper services will therefore be very important.  

The Commission is also completing the allocation among telcos of the new NZ$50m Telecommunications Development Levy.  The Commission decided that content providers such as Skype, SKY Network Television and other over-the-top providers are not liable, because they only make their content available to telcos but do not themselves provide services subject to the levy.  The next step is for the Commission to decide how much each liable telco must pay.

Recent Commerce Act matters

Vodafone has announced its intention to acquire TelstraClear.  The parties have applied to the Commerce Commission for clearance.  It will be interesting to see the Commission's views on the level of competition in the markets affected by the merger. 

The Court of Appeal has also recently upheld a NZ$12m penalty imposed on Telecom under the Commerce Act for unlawfully taking advantage of market power by charging downstream competitors disproportionately high prices for wholesale access to Telecom's network between 1999 and 2004.

Post Script:  Recent media commentary on the appointment of Dr Gale has picked up earlier comments by Opposition spokeswoman Clare Curran regarding the legitimacy of Dr Gale's appointment.  Questions have been raised about the job description, which incorrectly referred to regulation implemented under the Telecommunications Amendment Act 2006, and whether the failure to correct this constitutes grounds for judicial review.  Ms Curran has referred the matter to the Auditor-General and the Ombudsman. 

This article was written by Nick Crang for the Australasian Legal Business Magazine (issue 10.8, September 2012).  Nick is a special counsel, based in the Wellington office of Buddle Findlay, one of New Zealand's leading law firms.  Nick is a member of our public law and commercial teams and advises corporates, Crown entities, statutory boards, producer boards and government departments on legislative change, public law and regulatory obligations, and commercial law.